THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(COMMERCIAL BREAK)

CHRIS CUOMO, CNN ANCHOR: We're back now with writer David Bar Katz, a close friend of Philip Seymour Hoffman. David, thank you for joining us again. I know this is difficult. Your friend was intensely private. He didn't want to be discussed publicly. But correcting the legacy, correcting the information, obviously equally important now that he's gone.

And you especially, to be dealing with so many levels of the unimaginable -- losing a friend, being the one to discover him and have to relay that to his family. I know that it had to be tremendously painful for you.

What was it like to be processing that pain and then learn that, in a way, it was about to get worse when these stories started to come out about your relationship with him as more than friends and the understanding of drug use that you were having with him? What was your reaction?

DAVID BAR KATZ, PLAYWRIGHT: Well, my initial reaction was it's ludicrous that when saw when my son first saw something and told me that it was like, oh, saying that Phil and I were lovers. I was like, OK, Phil would have gotten a kick out of that. That's just ridiculous.

CUOMO: You heard from it about your son?

KATZ: Yes. He had been online in the morning. And then when it blew up, and it was like, this is now becoming this story and I was being chased by photographers and it became a thing where I unfortunately had to deal with in the midst of dealing with more important things. And that's when -- luckily I was friends with someone that's the kind of person that handles this sort of thing. And we did the lawsuit and forced the "Enquirer" to admit that they totally screwed up.

CUOMO: The media is often a pack animal, especially when it comes to gossip, celebrity gossip. But were you surprised at how something from the "National Enquirer" started to become respected as if it were AP copy? You know, that it was the truth and it just spread like wildfire, especially on the internet? KATZ: I was stunned. And I don't feel like I'm naive about that thing, but I always knew that they made stuff up, but I never knew they made up even having an interview with someone that they never had, and then the degree of seeing how everyone picks it up and, as you just said, treats it like news. I was really stunned by that.

CUOMO: So you say - they say they have an interview with you. That was completely untrue. You never did an interview.

KATZ: Right, with them.

CUOMO: You start the lawsuit. How aggressively did they push back before they realized their error?

KATZ: It seems like they realized really quickly that they messed up and that they spoke to the wrong guy.

CUOMO: They found another David Katz.

KATZ: I think they called every David Katz in the Tri-State area.

CUOMO: And one of them just decided to be this terrible person who was going to pretend to be you? And tell lies?

KATZ: Yes. So, I do believe they were misled.

CUOMO: Did they check? They did they make calls? They did get any close to you?

KATZ: It would have been so easy to ask anyone, to reach anyone around me and ask anything. But so they did zero follow up of that.

CUOMO: And you believe they didn't because they'd heard what they wanted?

KATZ: I don't know why they did it; I know that it's lousy journalism, you know, like a fourth grader did something like for the school newspaper, I'd reprimand them, so I don't know how they can purport to be journalists and function like that.

CUOMO: So they realize that you've got them. And even though they fight these things vigorously, it's tough to fight back with this. They're going to throw money at you to try to make this go away. But what do you tell them you want?

KATZ: Well, you know, through this process, and you and I were just discussing it on the break, I'm constantly dealing with what would Phil want? How -- you know, Phil's voice in my head. And so how can I do something out of this that he would like? And Phil loved theater and loved playwrights and loved plays, so creating a foundation that is dedicated to his spirit, and an award that allows plays to be written that wouldn't maybe otherwise be written because it gives playwrights, that are generally a disenfranchised group, some money so they can focus on writing.

CUOMO: What a beautiful gesture and an attempt to make a silver lining out of this situation. So the "Enquirer" agrees. They're going to fund this foundation. There's going to be a gift annually of $45,000 to a playwright. That's what we know so far. Other details I know are coming.

They had to admit they got it wrong. They did something that I've never seen them do before. This is "The New York Times". This is a full-page ad. Even though it's clever with the small text and stuff and looks a little bit like the "National Enquirer" is saying that they're just coming up with a great idea for the foundation, it's an apology to David Bar Katz. What does this mean to you?

KATZ: Well --

CUOMO: Here, you can have this.

KATZ: Thanks. All it really means is I'm happy that this changes the way they do business so other people don't have to go through this. And I'm happy that some playwrights are going to get something out of this.

Obviously, using the word "happy" about any of this is, like, in ten years from now when some plays that wouldn't have been written maybe are, I can talk in those terms, because I'm pretty miserable about every aspect of it. But I really didn't know what else to do.

So the other thing I want to say in terms of the award is the theater community and our group lost someone last night, Ed Vassallo, who was a good friend of Phil's and mine and a Labyrinth Theater Company member. And this is something we're going to announce in a couple months, but in addition to the prize, we're going to do a reading series of whoever the selected play is across the country at top regionals and in New York doing readings of the play that wins.

And so we want -- the award itself is the Relentless Award because of Phil's relentless search for truth and the series will be the Ed Vassallo Relentless Reading Series of these plays that are selected for our friend. That's new information.

CUOMO: I know it's hard. I know so much of it, while you feel you're doing the right thing, is unsatisfying. But you got the "Enquirer" to correct what is wrong. I know it's not going to be picked up in the media the way the initial story was. It's always the bittersweet part of a correction.

But do you feel somewhere that your friend Philip Seymour Hoffman, if he were looking at this situation, would say, "Hey, I don't like the publicity, but at least they're helping something I think is important?"

KATZ: I think he would feel that way. He would more be amused that I spilled ink on my pants and was on national television and give me a hard time about that. I think that would give him equal pleasure.

CUOMO: I know it was important for you to let people know what the real story was, what he was really about, what he wasn't about, and that this story was wrong. And we're happy to help get that message out as well.

KATZ: Thanks a lot, Chris.

CUOMO: The best to you as you deal with the loss and send the best to his family as well.

KATZ: Thanks.

CUOMO: Good you being here.

Michaela, over to you for some headlines.

MICHAELA PEREIRA, CNN ANCHOR: All right, Chris, it's 38 minutes after the hour. Starting with some frigid cold and more snow for millions of Americans. The eastern two-thirds of the nation facing temperatures 20 to 30 degrees below normal. Snow is also in the forecast today from the Appalachians all the way to New England. Parts of the Midwest and northern plains experiencing windchills as low as 30 below. That arctic blast is expected to stick around all week.

The U.S. is responding to the expulsion of three American diplomats from Caracas by expelling three Venezuelan diplomats. Venezuela's president, Nicholas Maduro accused the expelled American diplomats of supporting opposition plots to over him. But the White House says the situation in Venezuela is between Maduro and his people not between Venezuela and the U.S.

A story to tell you about one of our own. Miles O'Brien, the former CNN anchor, has lost part of his left arm following a freak accident. The award-winning journalist revealed details of his harrowing experience in an online blog posting. O'Brien says he was packing up TV gear two weeks ago when a case, a heavy case fell on his forearm causing it to swell up immediately.

The pain soon worsened. By the time he got to the doctor he was told he was suffering from acute compartment syndrome. It wasn't until emergency surgery that doctors realized the damages was so severe they had no choice, but to amputate at the elbow. Our best wishes and out thoughts with Miles today.

Nearly 150,000 Indiana University students and graduates are now being told their personal information may have been exposed. No hacking involved instead the university says the data including Social Security numbers was improperly stored and was picked up by web crawling software. The university has now secured that data and will help anyone exposed with credit monitoring.

Calls are growing for a Texas high school to reverse a harsh punishment for a student who turned in an un-open can of beer. He says he packed the beer instead of a soda when he was in a rush to get to school. When he realized, he gave the beer to his teacher who told the principal and he got suspended and sent to an alternative school for two months.

In a statement, the school district insists the principal followed appropriate protocol. A kid gets punished for doing the right thing and sent to an alternative school.

Coming up next on NEW DAY, the government may approve a new technique that could make it possible to change the genetics of your baby to prevent diseases. But is that a slippery slope? Does it make it right? We're going to debate it coming up.

CUOMO: That is a big one. Also, he's got his finger on the pulse of music. Why is Justin Timberlake encouraging his fans to flip the bird? Jeannie Moos will tell us.

(COMMERCIAL BREAK)

BOLDUAN: Welcome back. Genetically modifying children. A controversy that could soon become a reality. There's more to it than you might think. Let's talk about it. This morning, the FDA is considering a new technique that uses the DNA of three parents to try and eliminate genetically inherited diseases in newborns. It works by replacing defective parts of cells in the mother's egg with a donor before fertilization. But critics says the technique presents a host of there's a host of epic concerns.

BOLDUAN: Now this has a lot of people talking as well as it should. The question is, it's one thing to be able to do something medically.

KAPLAN: Right.

BOLDUAN: We have the advancements, but should we do it. Those are two separate questions. Do you think this is right?

CAPLAN: I do. And here's why. For this technique, basically you've got an embryo and its battery is broken. You remember the high school textbook. It needs power. These are people born with a disease, they can't make power. You're giving them a new battery. That's a therapy. I think that's a humane ethical thing to do. It's risky. But it's treating a disease. Where we get into the sticky part, what if you start to say, why don't we make you taller, stronger, faster or smarter?

BOLDUAN: Those are real questions. Let's talk about both of those things. Of course, the first question, is it safe? That is what they're looking to address in human trials. But the thing that many folks who are very critical of this say, you don't know what this means for generations to come. You're changing the cells of a baby --

CAPLAN: Right.

BOLDUAN: And that would transfer to generations to come. We don't know the effect of that. CAPLAN: And just to be clear, what doctors and scientists have always said is we're not going to do what you just said. We're not going to change genes that go on and on to future generations. We'll fix them in your body, but not ones that would be transmitted through reproduction. This crosses that line.

BOLDUAN: Right.

CAPLAN: That's why people are like, is this the right thing to do. I'm going to say still. I think it's the purpose. Repair a disease that gets inherited and goes on for generations, I think that's ethical. As long as it proves to be safe, I think it's ethical. Where we get tricky is what else are we doing to make it more perfect?

BOLDUAN: Let's talk about that slippery slope. Folks want a perfect baby and everyone's definition of a perfect baby, a healthy is their own definition.

CAPLAN: If you look at them, they're sending their kids to the right preschool, the right tennis lessons.

BOLDUAN: While it sounds, I think, creepy. It seems a very valid ethical concern here. You go from trying to correct a defect to make a baby healthier to I'm now going to pick the eye color. I'm now going to make this baby a super athlete.

CAPLAN: We are creeping down that road already. We can argue the ethics, but we already do it. You know, there are fertile people starting to go to infertility clinics to say test my embryos. I don't want one with a risk of breast cancer. I don't want one with a risk of hemophilia. But pretty quickly that's going to become I don't want one who is albino or I want one who is stronger, faster, taller.

Fertile people sorting out embryos. You're starting the other road of making better babies. So I'll make a prediction. We argue all the time in the United States around the world about abortion. The big issue over the next five to 10 years is going to become how far do we go in pursuit of the perfect baby? Do I think we're going down that road? Yes. Does it creep me out? Yes. Are you going to be able to draw a clear line? I don't think so.

BOLDUAN: Can you stop it, though?

CAPLAN: I don't think so. We're going to see case by case.

BOLDUAN: Is there a safer way to correct this battery, as you're describing it? Can't you use invitro fertilization to use the egg of another woman to put into yourself to avoid the defect --

CAPLAN: It's got the rest of your genes. What these parents are pursuing is that genetic bond. They are saying it is still looks like me. You're just substituting out the battery, so they feel that continuity. They don't want to take the chance of using a donor. They like the idea of being related genetically to the child they're going to have. BOLDUAN: One of them are vocal critics of this critical called it eggs as Lego pieces approach, which should be part of the discussion. Of course, the question remains simply being able to do something doesn't mean we should do it and that's why we brought you in.

CAPLAN: However, you know, I think we're going to see it happen. As I said I'm not the world's biggest fan of going down, let's call it what it is, eugenics, making super babies, better babies. Any time do you that you make the disability and lesser person feel lesser, but as you pointed out we're trying so hard to make our children better, healthier, stronger, educate them as well as we can. I can't imagine withdrawing. If we don't see it in this culture you know darn well it will happen in other cultures of the world that don't that have ethical reservations about playing God.

BOLDUAN: Always good to see you. Always a discussion starter whenever you're here. Thank you very much. Let us know what you think about this. I'm very interested in your thoughts. Tweet us at the #newday - Chris.

CUOMO: Coming up on the show, J. T. flips out, a heckler gets Justin Timberlake's attention. What he does next you got to see, but I'm not quite sure why. Coming up.

(COMMERCIAL BREAK)

PEREIRA: Welcome back to NEW DAY. This video is just going up online. Justin Timberlake heckled at a concert in Philly. He turns the tables. Takes the heckler at hand. Of course, CNN's Jeanne Moos has it.

(BEGIN VIDEOTAPE)

JEANNIE MOOS, CNN NATIONAL CORRESPONDENT (voice-over): Justin Timberlake has given us a heck of a lesson, how to handle a heckler, in this case, a female with upraised finger.

JUSTIN TIMBERLAKE: You sitting in the second row and flipping me the bird? That makes no -- sense.

MOOS: This concert in Philadelphia took place back in November, it's only now gone viral. The heckler said she wanted Timberlake to see her.

MOOS: The fan who shot this video won the concert tickets and a trip to Philly in a contest.

UNIDENTIFIED FEMALE: He's so charming.

MOOS: Stephanie Lough was impressed with how he handled the heckler.

STEPHANIE LOUGH, JUSTIN TIMBERLAKE FAN: I've seen a lot of comedians get heckled and usually they kind of throw it back at the person, kind of insult them.

MOOS: Daniel Tosh, for instance, is known for dishing it out to hecklers.

UNIDENTIFIED MALE: We'll edit you out like your parents wished they do.

MOOS: How about comedian, Jamie Kennedy, who was interrupted when he used the word waitress.

UNIDENTIFIED FEMALE: They are called servers.

UNIDENTIFIED MALE: I would like you to serve your mouth shut.

MOOS: But Justin Timberlake wasn't serving up put downs.

LOUGH: He made it really positive. He laughed at it. He got the whole crowd laughing.

MOOS: He turned the finger into a kumbaya moment. OK. If that's the perfect way to handle a heckler what's the imperfect way? Ask Kanye West. When fans asked Kanye to take off the mask he was wearing, Kanye took it personally.

KANYE WEST: You're trying to tell me how to give you my heart.

MOOS: The head security remove the fan.

UNIDENTIFIED MALE: Well, I look like a -- comedian.

MOOS: Well, we would have mistaken him for Justin Timberlake. He's put his finger on how to hand all heckler.

CUOMO: But it is funny how culture works because the story is all about how he handles it the right way but the sell is he gets the crowd to do the bird. The negativity -- she wanted the woman in the second row flipping the bird what she wanted she got. She wanted attention.

BOLDUAN: She wanted attention. Probably have second thoughts about it now coming out of that. I wouldn't do anything. CUOMO: More positive. Any time you get to contrast somebody with Kanye West they will always benefit from comparison.

Coming up on NEW DAY, it sounds like something straight out of a bond film, secret elevators, stacks of cash stuffed into pantyhose. How one bank helped its wealthiest clients hide billions of dollars from the IRS?

BOLDUAN: We continue to follow this medical mystery in California. More than 20 children paralyzed by an illness that they say is polio- like. What are the warning signs? We'll talk to the family of a 4- year-old girl who can no longer use her left arm.